This article was originally published in ACM Wealth
What is Maslow’s Hierarchy of Needs? Some of you may remember it from psychology class in college. It is the theory that states humans are motivated to fulfill their needs in a hierarchical order. This order begins with the most basic needs before moving on to more advanced needs.
I always strived to attain self-actualization. I am not there yet but it is always a goal for me. Since I am also a Certified Financial Planner and know the financial planning pyramid quite well, it dawned on me, wow these are almost the same.
Let’s break them down.
The base of both deal with the largest amount of where we all start. We all need to feel safe, secure, have the basics like air, water, food, shelter. It is also where we need to protect what we have. Cash management, insurance, disability etc lives here at the base. This is defensive planning.
Once you have the basics, you can start moving up the Pyramids. You can now move into more offensive planning. Plan for major purchases, college, retirement have an emergency savings. Here is where safety in Maslow’s intersects.
Next up the pyramid is goals planning, diversify to reduce risk, tax planning, outpacing inflation, maximize retirement plans, highest risk adjusted return tied to life goals. This ties with love and belonging and a little with Esteem on your way towards financial freedom.
As we move up the pyramid climbing toward the top, we strive for freedom, being the best we can be and move towards progressive planning or legacy planning. Here is where we pass on to our heirs, charity and leave a mark on the world. As a financial planner it is the highest honor to work with clients in this stage of their lives. Having our life’s work with money go beyond the grave and affect future change. If you have not thought about charity and estate distributions and your money’s future, you should. Speak with your CFP about this! It is a must! Ed Slott said you spend your entire life accumulating and taking the ball down the field and then most people lose it on the 10 yard line. Don’t forget the final step in planning. We are here for this top of the pyramid.
